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LONDON (Alliance News) - Serica Energy PLC Tuesday said it is to acquire an 18% stake in the Erskine Field, located in the UK central North Sea, from BP PLC in exchange for USD11.1 million cash and 27 million new Serica shares, in a move that Serica said will give it a cash flow boost, increase its proven and probable reserves, and complement its efforts to bring the nearby Columbus field into production.
According to Serica's estimates, the deal increases its proven and probable reserves to 8.8 million barrels of oil equivalent, from an estimated 5.2 million previously. Serica said the deal is tax efficient as it will speed up the recovery of both past and future tax losses in the UK.
The arrangement means that BP could end up acquiring a stake of up to 9.7% in Serica Energy. The final number of new shares issued depends on certain working capital adjustments to be made between the start of 2014 and the completion of the acquisition.
Serica will issue at least 13.5 million new shares to BP, while the maximum will not exceed 27 million shares. BP will hold the shares for no less than a year. If operating costs for the field fall below current projections, Serica will make "certain future contingent payments" to BP.
Serica said that the Erskine Field's average daily production was 10,092 barrels of oil equivalent in the first-quarter of 2014. Production was suspended for infrastructure maintenance after the quarter end. Production resumed on June 10. According to Serica, USD10.2 million in profit was attributable to the asset acquired in 2013, but noted that the figure is "not representative of future anticipated profits which are expected to be materially affected by increased costs, changes in production levels and by periods of closure for scheduled maintenance."
"The agreement to buy an interest in the producing Erskine field from BP is an important step for Serica. As well as having operational and taxation synergies, it increases the reserve backing per share, enhances the overall value of our assets, generates a valuable income stream for the company and expands our existing interests in the Central North Sea," Serica Chairman Tony Walker said in a statement.
"The Erskine field produces through the Lomond facilities which lie close to the Columbus field. The Lomond field facilities continue to offer one of the preferred development options for Columbus," Walker said.
"Securing an interest in Erskine provides us with a valuable foothold in a nearby producing field together with access to associated infrastructure and will assist us in our ongoing efforts to bring Columbus on to production," Walker added.
The chairman said Serica intends to build on its acquisition to strengthen its presence in the UK, as well as overseas, where it wants to bolster its existing portfolio in Ireland, Morocco and Namibia.
Serica said that production from the Erskine field currently suffers from inefficiencies in the transportation and processing plant downstream of the Erskine platform, particularly at the Lomond platform.
"Work is currently in hand to improve production efficiency which will require a shut down for scheduled maintenance between end October 2014 and end February 2015. Serica believes that the Erskine field is capable of significantly improved production performance if these current efforts to improve efficiencies are successful," Serica said in a statement.
The deal is conditional on the consent of other participants in the Erskine Field, which is operated by the US's Chevron Corp, as well as approval by the UK Department of Energy and Climate Change.
Serica Energy shares were Tuesday quoted at 11.75 pence, up 8.1%.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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